Fed meets, government plan to avoid shutdown, rail agreement and midterms
- Fed meets this week--Chair Powell talks to press Wednesday afternoon.
- 75bps increase widely anticipated.
- October 1 government funding deadline approaches, no roadmap, new problems
- Railroad agreement faces vote by union membership.
- Primaries over, candidates focus on issues such as abortion, immigration, and public safety
The Fed’s Federal Open Markets Committee (FOMC) meets Tuesday and Wednesday this week with Chair Powell’s all important press event after the meeting at 2:30 on Wednesday, September 21.
Fed Chair Powell has maintained a position of telegraphing policy, and at recent speeches in Jackson Hole and before the Cato Institute he has been clear that the Fed is on a mission to reduce inflation to its goal of 2%. The August CPI increase of 8.3% was a clear signal that the Fed has more work to do.
The Fed Chair has consistently made a few points. First, they will not stop rate increases prematurely even if higher rates cause some hardship to the economy. Second, a key goal as to assure inflationary expectations don’t rise, an issue that Powell believes was a key for Volcker when he tackled inflation in the 1980s.
While there has been some speculation that the Fed would try to shock markets with a 100bps increase, in my view this would break with the current policy of telegraphing to markets what policy course the FOMC is taking and that another 75bps increase seems consistent with this course of action.
As in the past, Chair Powell’s press conference after the rate policy is announced will be key to setting expectations going forward. He will summarize the views of the Committee members knowing that the minutes of the meeting will be released in a few weeks. I expect the Chair will again emphasize the Board’s commitment to see the process through to 2% inflation; there may be pain but the FOMC members will be data driven. Next FOMC meeting November 1 and 2.
Government Funding
Another week passed with no progress on finding a resolution to the government funding issue. In order to avoid a government shutdown Congress must pass some stopgap measure prior to the October 1 deadline.
In the past several weeks I have written about the hurdle posed by the commitment Democratic Leaders gave Senator Joe Manchin to include his energy project approval process reform in the “must pass” CR. Last week the legislative calculus was complicated by the introduction of a similar bill by Senator Manchin’s West Virginia colleague Senator Capito. Republicans immediately threw their support behind the Capito bill even though the Manchin bill has yet to be introduced. A glimmer of hope is that Manchin and Capito, who have worked together on issues in the past to help their home state of WV, will craft a joint Manchin/Capito bill. With progressive Democrats against the measure it will take some Republican votes to succeed.
Another issue that has emerged in the last few days is Republican opposition to any CR that does not run into 2023. Democrats have proposed a CR that runs past the election until December 16 giving the current Congress time to pass a so-called Omnibus Spending Bill to fund the government until October 1, 2023. The new wrinkle is that some Republicans, backed by former President Trump, want the CR to run into the new year when they expect Republicans to control at least the House and maybe both Chambers. These Republicans say they will oppose any CR that expires in the lame-duck in December. Since the CR needs at least 10 Republican votes to pass the Senate this is an issue worth watching.
Railroads
Last week, hours before a strike deadline, the White House announced an agreement between labor and management to avoid a national rail strike. However, the agreement must now be ratified by the union memberships and there are some reports of worker unhappiness with the deal. It reportedly will take a few weeks to vote and count the votes meaning that, if rejected, a rail strike could begin weeks before the midterm election, not a plus for the party that controls the White House, and that did a victory dance with the announcement of an agreement.
Midterms
With the primaries that happened last week all the candidates for Election Day have been chosen; now both parties are refining their closing arguments.
Democrats are more and more turning to the Supreme Court decision overturning Roe and allowing states to ban abortions. In the Kansas constitutional amendment vote and in a few special House elections, Democrats seem to have benefited by gaining votes of independent women voters. Some Republicans are trying to dodge the issue in their commercials and interviews while Democrats are eager to bring the question up in debates. Senator Lindsay Graham’s bill introduced last week to have a national ban on abortions after 15 weeks gave heartburn to some Republicans and a wedge issue to Democrats.
Republicans are eager to push issues such as individual freedom ranging from books in schools to vaccine mandates. Immigration and the flood of illegals entering on the Southern border. Law and order is a traditional Republican go-to issue and with rising crime rates many Republican candidates are reminding voters of the battle cry to defund the police that has been a significant negative for Democrats.
Polling continues to show a small, but significant advantage for Republicans in the House and a toss-up in several key Senate races.
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